What Assets Can the IRS Seize?

Key Takeaways

• The IRS can seize numerous asset types, including wages, bank accounts, retirement funds, property, vehicles, business assets, and cryptocurrency, through a legal process known as a levy.
• A levy differs from a lien—it enables the IRS to take and sell assets to cover unpaid tax debt, usually after multiple notices and warnings.
• Certain property is exempt from seizure, including essential clothing, limited personal effects, unemployment benefits, child support, and tools of your trade (up to a value limit).
• The IRS can garnish wages continuously, levy bank accounts in one-time actions, and apply federal and state tax refunds to outstanding tax balances.
• Cryptocurrency assets such as Bitcoin and Ethereum are now vulnerable to IRS levies, with the agency using blockchain analysis to track unreported holdings.
• Taxpayers maintain certain rights, including the ability to request a Collection Due Process hearing within 30 days after receiving a Final Notice of Intent to Levy.

Managing tax debt can be overwhelming and anxiety-inducing. When you have outstanding tax obligations to the IRS and haven't addressed them, concerns about asset seizure may weigh heavily on your mind. Knowing what property the IRS has the power to take is crucial for taxpayers, particularly those experiencing financial challenges. This guide provides a detailed explanation of assets that are vulnerable to IRS collection and those that remain protected.

Can the IRS Seize My Assets?

The answer is yes. Both IRS liens and levies serve as collection mechanisms for unpaid taxes, but they operate in distinct ways. A lien represents a legal claim the IRS establishes against your property, securing the government's financial interest in your assets. A levy involves the actual taking of a taxpayer's property by the IRS to cover unpaid tax debts. This usually happens following numerous notices and collection efforts.

The IRS doesn't require judicial authorization to issue levies. However, prior to taking assets, they typically send a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing," providing you with at least 30 days to respond or challenge the action. Taking your property is viewed as an extreme measure. The IRS will initially try to collect through various notices and alternative methods to allow you chances to settle the debt, such as establishing installment agreements or offers in compromise. Failing to respond to IRS communications may result in a tax lien being filed. The IRS will only move forward with asset seizure after these procedures and a final warning.

Which Assets Can the IRS Seize?

After the IRS has sent all necessary notifications and provided you with opportunities to respond, they can proceed with asset levies. Virtually any property with value or equity that can be converted to cash may be subject to IRS seizure. These assets may encompass:

Wages and Paychecks

For W-2 employees, the IRS can continuously garnish a portion of your paycheck until the debt is resolved. This means they can legally require your employer to deduct a percentage of your earnings to satisfy your tax obligations. Some of your wages remain exempt depending on your filing status and number of dependents. However, there's no maximum duration for how long the levy can stay active. This creates a substantial financial strain, as the garnishment persists until your entire tax debt is paid off.

The IRS also possesses the power to take other income sources, including self-employment earnings, rental income from tenants, outstanding receivables, Social Security benefits, and commission payments. However, the IRS generally cannot take death benefits themselves unless they've already been distributed and form part of the taxpayer's estate. Furthermore, term life insurance policies lacking cash value are typically exempt from seizure.

Bank Accounts

The IRS can take money from your bank accounts, including checking, savings, and money market accounts. They can also levy investment accounts containing stocks, bonds, and mutual funds. Even retirement accounts such as 401(k)s, IRAs, and pension plans are vulnerable. However, specific regulations apply, and early withdrawal penalties may be triggered when accessing retirement funds.

In contrast to wage garnishments, bank and investment levies are single-action events, meaning the IRS can only take funds present in the account when the levy is executed. Banks must freeze the funds for 21 days before turning them over to the IRS. This provides you with a window to respond or work out a solution. You can continue making deposits or withdrawals afterward, but the IRS may issue new levies whenever they choose. Usually, the IRS will notify you about this action, offering a brief period to dispute the levy or make payment arrangements.

Investment and Retirement Accounts

The IRS holds legal power to take your 401(k) and other retirement savings, including IRAs. The IRS can also take funds from brokerage accounts. While these accounts enjoy protection from most creditors, the IRS maintains the legal authority to take funds from your retirement savings to recover unpaid taxes. However, specific rules and restrictions exist, especially concerning early withdrawal penalties and protections for certain retirement account types under federal and state regulations. Your Social Security benefits can also be partially taken through the Federal Payment Levy Program (FPLP).

Real Estate

The IRS can file a lien against your real estate, including your main home, vacation properties, and other real property, creating a legal claim against it. Taking your primary home requires a court order and represents an extreme measure. The IRS must complete a judicial process before executing such an action. Other properties, including vacation homes or investment real estate, may also be vulnerable to seizure. When property is sold, it usually happens through public auction, with proceeds going toward your tax debt.

Vehicles and Other Personal Property

The IRS can also take and sell automobiles, boats, jewelry, artwork, or other personal belongings to satisfy a tax debt. Before taking these items, the IRS typically evaluates the property's value compared to the amount you owe. This is because the expenses involved in seizing and selling the property might not always make the action worthwhile.

Life Insurance

Under certain circumstances, the IRS can take the cash value of life insurance policies, especially the cash surrender value. If you're the beneficiary of such a policy and have IRS debt, the agency can levy those proceeds. Also, if you own a life insurance policy with no designated beneficiary and owe taxes, the IRS can take the policy funds before they're distributed to your heirs.

Business Assets

For business owners, the IRS can take business bank accounts and numerous business assets. This includes machinery, tools, cash on hand, inventory, and outstanding receivables. This can severely interrupt business operations and create financial uncertainty. Some "tools of the trade" may qualify for protection, but this exemption carries a limited dollar cap. Expensive business equipment and property remain vulnerable to seizure.

Future Tax Refunds

Upcoming federal and state tax refunds can be taken by the IRS and applied toward your outstanding tax debt. This frequently occurs automatically via the Treasury Offset Program.

Cryptocurrency and Other Digital Assets

Over the past several years, the IRS has taken aggressive steps to confiscate digital currencies such as Bitcoin and Ethereum. Since the IRS treats cryptocurrency as property, it can be levied similar to real estate or securities. The IRS has confiscated crypto assets worth billions of dollars and collaborates with blockchain analysis companies to monitor wallet transactions. If you have tax debts and unreported cryptocurrency holdings, these assets face significant seizure risk.

Which Assets Are Protected from IRS Seizure?

Not all of your property is vulnerable to seizure. Generally speaking, any asset that isn't essential for your basic needs and housing (or the basic needs and housing of your family) may be taken to satisfy your IRS debt. Under 26 CFR § 301.6334-1, the following assets are protected:

• Clothing and educational materials
• Fuel, furniture, and personal belongings up to a specified dollar amount
• Specific annuities and pension payments
• Unemployment compensation
• Workers' compensation benefits
• Child support payments
• Minimum exemption amounts for wages, salaries, and other income
• Tools required for your trade or business (subject to a dollar limit)
• Mail that hasn't been delivered

Your main home is usually protected unless the IRS obtains a court order. Even in that case, it's treated as an extreme measure and typically only pursued for substantial tax debts.

After a Seizure: What Happens Next?

If the IRS has already taken your property, you still have hope. You may retain options for getting it back or at minimum preventing its sale.

IRS Sale Process

After confiscating your property, the IRS must provide you with at least 10 days' advance notice before selling it, usually via public auction. The sale proceeds are applied to your tax debt. Any remaining funds after the debt is satisfied belong to you.

How to Get Your Property Back

You can ask the IRS to release the seized property or levy under specific circumstances:

• You've fully paid the tax debt
• The seizure is creating severe economic hardship
• You've established an installment agreement
• The property's worth exceeds your debt and releasing it won't impede collection efforts
• The levy was issued incorrectly or too early

Your Rights and Options

When you receive a Notice of Intent to Levy, you possess specific rights and must act promptly to protect them. You have 30 days to request a Collection Due Process (CDP) hearing, where you can challenge the tax debt, suggest payment arrangements, or present financial hardship arguments. Throughout this period, the IRS cannot take your property.

Additional alternatives you can explore:

• Installment Agreements: paying your balance in monthly installments over time
• Offer in Compromise: negotiating a settlement for less than the total amount owed
• Currently Not Collectible (CNC) Status: temporarily halting collection activities due to financial hardship

Frequently Asked Questions